"The short answer is simply that [Ontario] doesn't have a choice because everybody else is doing it," Tal said, acknowledging countries such as New Zealand that have similar taxes.

"If you see activity rising ... you'll have to do something about it because the issue is not those foreign investors, the issue is to what extent they inflate prices in a way that it is much more difficult for people who live in Toronto, in Ontario, to buy a house."

The average price of a home in the Greater Toronto Area (GTA) grew from $603,534 to $710,410 year-over-year last month, with sales jumping from 7,943 units to 9,813, according to the Toronto Real Estate Board (TREB).

The bulk of the activity happened in the 905 area code, where the average price grew from $601,813 to $728,122.

A condo building under construction in Toronto. (Photo: Aaron Harris/Reuters)

But a foreign tax isn't the only way that the province could help people afford a home.

In the report, he estimated that foreign buyers make up about five per cent of home transactions in the GTA (in Vancouver it was 10 per cent over a five-week period this summer), with another 10 per cent of demand "coming from a satellite-type situation in which the money comes from abroad but the unit is occupied by a relative."

"Foreign buyers are not the chief cause of rising house prices in the GTA, but their impact is not trivial," he said.

As such, he recommended a number of measures, such as a flipping tax, an empty unit tax (which Vancouver is implementing) and an increased land transfer tax.

He also suggested "limiting foreign buying only to new developments."

'Places to Grow'

But taxes weren't his only prescription for improving affordability. He also criticized Ontario's Places to Grow Act, legislation intended to limit growth in certain areas throughout the province.

He said policies such as a proposal to concentrate at least 60 per cent of new developments within urban boundaries have "limited the availability of serviced land for ground-oriented houses" and choked the supply of serviced land.

The province initially intended to concentrate 40 per cent of new developments within urban boundaries by 2015, but it raised the target earlier this year.

He recommended that the province reassess such targets because "the higher the rate is, the less land is released in the outskirts — adding to the lack of land supply."

Down payments

The federal government could also cool housing activity if it goes further than it already has on down payments.

Earlier this year, federal Finance Minister Bill Morneau introduced new mortgage rules, such as requiring down payments of 10 per cent on homes worth between $500,000 and $1 million.

Tal suggested that minimum down payments for these home values be set even higher.

He also recommended making it more difficult to obtain a five-year fixed rate loan. Borrowers, he said, should prove that they can afford to pay off such loans at higher rates.